CHICAGO - American Municipal Power-Ohio plans to enter the market this month with roughly $150 million in revenue bonds to pay off a note issue that advanced financing of the massive, multi-state $3.7 billion Prairie State Energy Campus Project.

Proceeds from the 35-year, fixed-rate bonds will be used to pay off $120 million in notes that are due April 1. AMP-Ohio used the notes to finance part of its 23.26% ownership stake in the Prairie State coal-fired generation plant, located in southern Illinois.

After this transaction, AMP-Ohio will have issued roughly $900 million in long-term debt to finance its share of the project, with another roughly $600 million needed to complete its acquisition, according to recent federal testimony by AMP-Ohio chief financial officer Robert Trippe.

The transaction is scheduled for March 19. JPMorgan is senior underwriter.

The bonds are secured by AMP-Ohio's net revenues, which are derived from take-or-pay power sales contracts with 68 municipal participants that have an average weighed credit rating of A2, according to Moody's Investors Service. The contracts are valid whether or not the project is completed.

In advance of the upcoming sale, Moody's assigned an A1 rating with a stable outlook to the bonds. In a report, analyst Dan Aschenbach cited the underlying strength of the group of municipal electric utilities in Ohio and other states that are participating in the Prairie State project. The project's budget and construction is on track and the project is about 14% complete, Aschenbach said.

Standard & Poor's and Fitch Ratings both assigned an A rating with a stable outlook to the bonds.

AMP-Ohio is one of eight municipal joint-power agencies that will hold ownership stakes in the Prairie State project. Most of the other seven member agencies hit the market throughout 2007 and early 2008.

AMP-Ohio's financing for the project hit a number of snags last year due to turmoil in the municipal bond market, Trippe said in testimony before the Federal Energy Regulatory Commission Jan. 13. The testimony was part of the commission's examination of the capital and credit markets' impact on the electric power industry.

Trippe said due to the market, AMP-Ohio could not follow through with its original plan to issue a big chunk of long-term debt in early 2008 for the project.

"Those plans had to be revised due to a litany of reasons, which include (but are not limited to) lack of long-term bond market access and volatile market and economic conditions, the meltdown of Bear Stearns, fewer bond insurers willing or able to provide bond insurance at economic premiums, and higher than expected yields on long-term tax-exempt bonds," he said.

Instead, AMP-Ohio issued $120 million in notes in April, 2008 to finance its initial expenditures for the project. In late June the agency sold $760 million in long-term fixed-rate bonds.

"Today approximately $600 million in Prairie State Project costs remain to be permanently financed," Trippe said.

The Prairie State coal plant project includes two pulverized-supercritical generating units with a combined 1,582-megawatt capacity and an adjacent mine that is under construction with 200 million tons of coal reserves. Proponents say it will be a state-of-the-art facility with advance scrubbing systems to produce clean, low-cost electricity to more than 1.7 million households. Environmental groups opposed to the project say it will significantly contribute to air pollution.

Credit analysts generally praise the Prairie State project but note construction and regulation risks associated with large coal-fired generators could pose a problem in the future. Environmental regulations targeting greenhouse emissions could have a significant impact on the project, analysts warn.


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